Recent Updates

  • US: BEA Auto Sales, Employment Situation (Nov)
  • US: Household Survey Detail (Nov)
  • Canada: Labor Force Survey (Nov)
  • US: Establishment Survey Detail (Nov)
  • Romania: Foreign Reserves Press (Nov)
  • more updates...

Economy in Brief

Japan's Tertiary Index Backs Off As Recovery Sputters
by Robert Brusca  July 15, 2021

Japan's indicators paint an uneven picture of recovery.

Rating the index readings
The second column from the right in the table ranks the various indicators on their levels. That is a most appropriate comparison for diffusion indexes and less appropriate of ordinary indexes (like orders the LEI and the sector indexes) that will growth over time and do not have the boundary issues of a diffusion index. The LEI and the order indexes that are not diffusion indexes show the strongest readings as of May. Most other reading are considerably weaker. For May this is because Japan is still digging out from low readings in the wake of the virus in May 2020.

Since January 2020
Four of the five Teikoku indexes are lower on balance than they were in January 2020 before the virus struck. Only the economy watchers headline is lower than it was in January 2020 as the employment and future indexes are significantly high on balance in May. While not present in the table, the Markit services index is about as far below its January 2020 level as the Markit manufacturing index is above it.

The industry and tertiary sector indexes are both below their January 2020 levels while the LEI index is higher on balance.

All of the orders metrics are higher compared to January 2020 except the orders sourced from Japan's own domestic demand.

Growth ratings
Rankings based on growth (12-month growth) show much stronger standings. These growth rates look at the gains from May 2020 when the impact of the virus on the economy was still relatively severe. So it is not very surprising that when ranked on growth alone the rankings are broadly very strong with many 90th percentile standings. Construction (Teikoku) has 'only' a 72.7 percentile standing for its growth ranking and domestic demand for orders has an even weaker 50th percentile standing as it shines a light on weakness in the domestic portion of Japan's economy and its dependence on external factors for growth.

Percentile standings
The fifth and sixth data columns (from the left) present the position of the current indicators in their respective historic high-low ranges instead of among their ranked observations. The high-low percentile standings are of interest but are less powerful than the rank standings. Rank standing position the current observation as a percentile position among all observations. The high-low percentiles place the current reading in a range that uses only three observations: the highest, the lowest, and the current observation. For the most part the current readings are much lower on the percentile range than on the ranking scale. This indicates that the percentile readings are relatively farther from the top of their range than from the bottom.

Recent trends
The various May readings of the economy watchers index are below their recent four-month best readings. The headline itself has slipped in the last two months. The employment gauge seems to be firming at a reading of 49. The future index was stronger in February and March, weakened in April, then came part-way back in May. All of the Teikoku indexes slipped in May; retailing services and construction also slipped in April. The industry and tertiary indexes are both at a four-month low in May; both fell significantly in May itself. The LEI is faring somewhat better and while it fell month-to-month it fell from a sharply higher reading in April. The LEI appears to be firming; its growth rate is high and it is up significantly from January 2020. That is about the best news in the table. Orders are mostly rising over each of the last two months but with foreign orders up by 127.7% over 12 months and with domestic orders up by only 1.8%. Domestic demand also is lower by 7.2% from January 2020.

One thing the data in this table attest to is that how we assess an indicator and use it to assess the economy depends importantly how we vet the index itself. We have been in a tough period with variability and extreme ups and downs. Economists generally 'prefer' to look at 12-month growth rates because they are powerful and tend to be reasonably stable (certainly when compared to shorter duration changes); however, at this time the 12-month comparison is not an objective assessor. Growth over 12 months shows very strongly while the comparisons of current indicators to their January 2020 levels shows 8 of 15 indicators lower on balance. Compared to the period just before the virus struck and wreaked its havoc on the global economy, Japan is not broadly back to normal and neither are most countries. The truth of growth and our current economic position is difficult to pin down. It is quite clear that conditions remain uneven. It is clear that some of the growth has been very strong. But on balance Japan is still fighting to stabilize its economy. For now it appears that the global economy is providing an important boost to Japan's economy, but it also needs to get the domestic aspect to its economy as exemplified by the weak service sector assessment and weak domestic industrial orders on a stronger road to growth. And this task continues to be challenging as Japan continues to fight off spreading infection even as it prepares to host the one-year delayed Olympic games.

large image